Commitments and Contingencies

9 Months Ended

Sep. 30, 2021

Commitments and Contingencies

Commitments and Contingencies

11. Commitments and Contingencies

Leases

In September 2017, Bicycle Therapeutics Inc. entered into a lease agreement for office and laboratory space in Lexington, Massachusetts, which commenced on January 1, 2018 and expires on December 31, 2022. Bicycle Therapeutics Inc. has the option to extend for a successive period which is not included in the lease term as it is not reasonably certain that the option will be exercised. In conjunction with the lease agreement, Bicycle Therapeutics Inc. paid a security deposit of $0.2 million as well as prepaid rent of $0.1 million for the first month of the third, fourth, and fifth year of the lease. The deposit is recorded in other assets in the condensed consolidated balance sheets. The Company has recorded a right-of-use asset (inclusive of the impact of prepaid rent) and corresponding lease liability, by calculating the present value of lease payments, discounted at 9%, the incremental borrowing rate, over the lease term.

In October 2017, BicycleRD Limited entered into a lease agreement for office and laboratory space in Building 900, Babraham Research Campus, Cambridge, U.K. which expires on December 11, 2021. The annual rent is approximately $0.5 million. The lease agreement provides that the Company has the right to renew the lease for five years commencing December 12, 2021. The renewal period was not included in the original lease term as it was not reasonably certain that the right would be exercised. In March 2021, the Company concluded that it was reasonably certain that it would exercise the lease renewal option, and accounted for the lease extension as a modification of the existing lease. The Company remeasured the right of use asset and lease liability by calculating the present value of expected lease payments, discounted at 7.70%, the Company’s incremental borrowing rate, over the new lease term. The payments for the modified lease are approximately $0.5 million through December 31, 2021, and $0.8 million annually thereafter. Service charges are also payable based on floor area and are estimated to be approximately $0.1 million per year. In conjunction with the October 2017 lease agreement, the Company paid a security deposit of $0.6 million, which

is recorded in other current assets in the condensed consolidated balance sheets. In June 2021, the Company exercised its option to renew the Cambridge, U.K. lease for five years commencing December 12, 2021.

The components of the Company’s lease expense, which are recorded as a component of research and development expenses and general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Operating lease cost	$	273	$	226	$	773	$	669
Variable lease cost		222		153		444		456
Total lease cost	$	495	$	379	$	1,217	$	1,125

The weighted average remaining operating lease term was 4.6 years and 1.9 years for the period ended September 30, 2021 and 2020, respectively, and the weighted average discount rate was 7.89% and 8.61% for the period ended September 30, 2021, and 2020, respectively.

The following table summarizes the maturities of the Company’s operating leases as of September 30, 2021, including the payments for the U.K. lease renewal which is reasonably certain of being extended (in thousands):

Year Ending December 31,
2021	$	235
2022		1,087
2023		646
2024		646
2025		646
2026		646
Present value adjustment		(585)
Total lease liabilities		3,321
Less: current lease liabilities		(826)
Long term lease liabilities	$	2,495

The Company has entered into various agreements with contract research organizations to provide clinical trial services, contract manufacturing organizations to provide clinical trial materials and with vendors for preclinical research studies, synthetic chemistry and other services for operating purposes. These payments are not included in the table of operating lease payments above since the contracts are generally cancelable at any time upon less than 90 days’ prior written notice. The Company is not contractually able to terminate for convenience and avoid any and all future obligations to these vendors. In some cases, we are contractually obligated to make certain minimum payments to the vendors, based on the timing of the termination notification and the exact terms of the agreement.

Legal proceedings

From time to time, the Company may become involved in various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business.

In September 2016, BicycleRD Limited, filed a complaint in the District Court of the Hague against Pepscan Systems B.V. and its affiliates (“Pepscan”) to contest the right of Pepscan to terminate a non-exclusive patent license agreement entered into with Pepscan in 2009. On November 20, 2020, the Company entered into a settlement and license agreement with Pepscan regarding Bicycle’s use of Pepscan’s CLIPS peptide technology. The companies agreed to settle all intellectual property disputes worldwide. Under the terms of the settlement, Bicycle has been granted a license to use CLIPS peptide technology in the development of its product candidates BT1718 and THR-149. Bicycle paid €3.0 million in November 2020, will pay €1.0 million on the first anniversary of the date of settlement, and will make additional future milestone payments upon the achievement of development, regulatory and commercial

milestones, with an aggregate total value of $92.4 million. The Company recorded $4.7 million of expense related to the settlement and license agreement with Pepscan during the year ended December 31, 2020, and a liability of $1.2 million related to the Pepscan litigation as of December 31, 2020 and September 30, 2021, which is included in current liabilities in the condensed consolidated balance sheet.

Founder royalty arrangements

At the time BicycleRD Limited was organized, BicycleRD Limited entered into a royalty agreement with its founders and initial investors (the “Founder Royalty Agreement”). Pursuant to the Founder Royalty Agreement, as amended, the Company will pay a royalty rate in the low single digit percentages on net product sales under the collaborations with Oxurion and AstraZeneca to its founders and initial investors, for a period of 10 years from the first commercial sale on a country by country basis. No royalties have been earned or paid under the royalty arrangements to date.

Indemnification obligations

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has indemnification obligations towards members of its board of directors and officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification arrangements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnification obligations. The Company is not aware of any claims under indemnification arrangements, and therefore it has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of September 30, 2021 and December 31, 2020.